The RERC Draft Demand Flexibility and Demand Side Management Regulations, 2026 represent a landmark regulatory framework for Rajasthan’s power sector. These regulations mandate DISCOMs to treat electricity demand as a dispatchable grid resource, establish dedicated DF/DSM cells, meet escalating Demand Flexibility Portfolio Obligations (0.25% to 2% of peak demand by FY 2029-30), introduce aggregator-based market mechanisms, and rigorously verify savings through international protocols. This article provides a comprehensive analysis of the regulations, their industry impact, and how they position Rajasthan at the forefront of India’s energy transition.
Background
On January 28, 2026, the Rajasthan Electricity Regulatory Commission (RERC) issued a public notice introducing the draft Rajasthan Electricity Regulatory Commission (Demand Flexibility (DF)/Demand Side Management (DSM)) Regulations, 2026 — a comprehensive regulatory framework designed to transform how demand-side resources are managed in the state’s power system. Public comments are invited until February 27, 2026, and the Demand Flexibility Portfolio Obligations become effective from April 1, 2026.
Rajasthan is India’s largest solar power state, with 36.6 GW of installed solar capacity — comprising 26.9% of the country’s total. Between April and December 2025, the state supplied 35.8% of India’s entire solar energy output and currently hosts 44% of all under-construction solar projects in the country. While this is a massive achievement, it has introduced significant operational complexity — the “duck curve” phenomenon — where solar generation surges during the day but collapses just as evening demand peaks, requiring rapid ramping of expensive thermal plants or costly short-term power purchases.
Authority
The regulations are framed under Section 181(2)(zp) of the Electricity Act, 2003, read with Sections 3, 61, 66, and 86, empowering state commissions to frame regulations for demand-side management and energy efficiency. Two key policy drivers triggered this regulation:
- Rajasthan’s Integrated Clean Energy Policy, 2024, which emphasized integration of energy efficiency and demand-side management.
- A formal request from the Chairman of Rajasthan DISCOMs (letter dated January 9, 2026) to formulate a comprehensive demand flexibility framework
At the national level, this follows similar regulatory moves by Maharashtra’s MERC (2024) and Karnataka’s ERC (2025), placing Rajasthan within a growing national trend. As Ajitabh Sharma, IAS (ACS Energy, Rajasthan) stated, the vision is to “transition DISCOMs to a proper DERMS and DSO in stages“.
The Two-Fold Strategy
The regulations adopt a dual-pillar approach that operates on two complementary levels:
Pillar 1: Demand Flexibility — Load Shifting
This involves deferring or shifting electricity consumption from high-cost peak periods (evening hours) to low-cost, solar-rich daytime hours. Under the regulations, “Demand Flexibility” is defined as the ability of demand-side loads to vary consumption patterns on an hourly or any other time scale, making electricity more affordable while reducing or deferring system costs.
Pillar 2: Demand Side Management — Energy Efficiency
The second fold focuses on sustained reductions in overall electricity demand through deployment of more efficient appliances, industrial process improvements, and behavioural changes. DSM captures all DISCOM actions toward altering end-use of electricity — whether to increase, decrease, or shift demand between peak and off-peak periods — in the overall interest of reducing utility costs.
Together, these two pillars directly reduce power procurement costs by minimizing the need for expensive peaking power, and the systemic savings translate into reduced tariff burdens on all consumers.
Key Institutional Mandates
DF/DSM Cell — Dedicated Unit in Every DISCOM
Every Distribution Licensee must establish a dedicated DF/DSM Cell, headed by an officer not below the rank of Chief Engineer. This cell is responsible for:
- Conducting detailed load research and market research
- Designing programmes tailored to various consumer segments
- Consumer outreach and awareness campaigns
- Creating and maintaining a digital registry of aggregators, consumers, flexible resources, baselines, and event performance
- Submitting cost-benefit analysis and EM&V reports to the Commission.
DF/DSM Consultation Committee
A separate DF/DSM Consultation Committee may also be set up as a technical advisory body, with a stated tenure and terms of reference, to ensure demand-side resources are managed with the same professional rigor as traditional supply-side assets.
Demand Flexibility Portfolio Obligations (DFPO)
The regulations introduce mandatory, escalating targets for flexible demand, expressed as a percentage of the previous year’s peak demand:
| Financial Year | DFPO Target (% of Previous Year’s Peak Demand) |
|---|---|
| FY 2026-27 | 0.25% |
| FY 2027-28 | 1.0% |
| FY 2028-29 | 1.5% |
| FY 2029-30 | 2.0% |
Targets for subsequent years will be notified by the Commission from time to time. DISCOMs may meet DFPO through their own programmes (e.g., behavioural DR apps) or by procuring capacity from registered Aggregators.
Performance-Linked Incentives and Disincentives
- Incentive: ₹0.20 crore for every MW achieved in excess of the DFPO target.
- Disincentive: ₹0.20 crore for every MW of under-achievement of DFPO
- DISCOMs must report DFPO performance in their Annual Revenue Requirement (ARR) petitions.
For comparison, Maharashtra’s DFPO trajectory is more aggressive at 3% to 7% over 5 years, while Rajasthan’s conservative approach (0.25% to 2%) reflects the need to build institutional capacity within state-owned DISCOMs.
The Aggregator Model — A New Marketplace
One of the most transformative provisions is the introduction of Aggregators — entities registered with the Distribution Licensee to bundle the flexible loads of multiple small-scale consumers and offer them as a single dispatchable resource to the DISCOM. An Aggregator can combine loads from:
- Electric vehicle charging fleets
- Agricultural pumps (especially PM-KUSUM solar pumps)
- Commercial HVAC systems
- Residential smart appliances
- Behind-the-meter battery energy storage
This opens investment opportunities in aggregation platforms, data analytics, automation technologies, IoT solutions, and customer engagement tools. Key governance safeguards include:
- DISCOMs must satisfy themselves that an Aggregator is technically and financially competent.
- Aggregators and Independent Verification Agencies (IVAs) must be separate entities to prevent conflicts of interest.
- Consumer awareness and willful consent are mandatory, with clear withdrawal rights and data privacy protections under the Digital Personal Data Protection Act, 2023.
Priority Programmes and Target Sectors
The regulations identify a comprehensive list of sectors and programme types:
- Agriculture: Shifting irrigation/pumping loads to daytime solar hours via PM-KUSUM — one of the largest potential flexible demand sources in Rajasthan.
- Electric Mobility: Smart charging for 2-wheelers, 3-wheelers, passenger cars, fleet vehicles, public transport buses, freight carriers, and last-mile delivery vehicles.
- Behind-the-Meter Storage: Battery energy storage systems at consumer premises
- Thermal Applications: Heat pumps and thermal energy storage in residential buildings, hospitals, hotels, industries, and commercial buildings
- Cold Storage & Refrigeration: Efficient refrigeration and cold storage programmes
- Appliance Replacement: Replacing old/inefficient appliances with efficient ones
- Behavioural Demand Response: Awareness-driven programmes requiring no capital investment
- Water Supply Systems: Time-based selective pumping in municipal corporations, urban local bodies, and village drinking water schemes
- Virtual/Group Net-Metering: Consumers in utility-led aggregation models incentivized for demand flexibility
- Grid Harmonics Monitoring: Monitoring harmonic levels as part of the DSM portfolio.
DF/DSM Zones — Targeted Network Relief
DISCOMs must identify, on an annual basis, specific distribution transformers, feeders, and substations with network constraints as “DF/DSM Zones” for priority intervention. This is especially relevant given that rooftop and feeder-level solar surges are already forcing Rajasthan to overhaul its distribution grid infrastructure.
Cost-Effectiveness Assessment Framework
Every proposed programme must undergo rigorous multi-layered economic testing:
Total Resource Cost (TRC) Test — Primary Hurdle
All programmes must show a positive Net Present Value (NPV) — where the present value of benefits (avoided power purchase, avoided infrastructure upgrades, reduced maintenance) exceeds the present value of costs (equipment, installation, O&M, marketing, administration). The formula is:
where Bt is the benefit in year t, r is the discount rate, and n is the time period.
Ratepayer Impact Measure (RIM) Test
Programmes clearing TRC must then pass the RIM test, confirming that implementation costs will not adversely impact tariffs for non-participating consumers.
Life-Cycle Revenue Impact (LRI-RIM) — Safety Valve
Programmes failing the RIM test may still be implemented if the tariff impact is less than ₹0.005/kWh or 0.05% of existing tariff, whichever is higher. This provision allows socially beneficial programmes with marginal tariff impact to proceed.
Supplementary Tests
DISCOMs must also submit results of the Participant Cost Test (PCT) and Societal Cost Test (SCT) — the latter incorporating indirect benefits such as reduced greenhouse gas emissions — though these are not decision-making criteria.
Key Economic Parameters
| Parameter | Value |
|---|---|
| Discount Rate | Weighted Average Cost of Capital (WACC) |
| Year-on-year Escalation | 5% for energy and demand savings |
| Avoided cost (TRC/RIM/PCT) | Weighted average of highest marginal cost from top 10% of energy use stack |
| Avoided cost (SCT) | CERC Day Ahead Market ceiling rate |
| Technology | Based on warrantied years of service |
Evaluation, Measurement & Verification
The regulations establish a comprehensive EM&V framework to ensure reported savings are real and verifiable:
Three types of Evaluation:
- Impact Evaluation: Determines actual energy/demand savings plus co-benefits — avoided emissions, health benefits, job creation, water savings.
- Process Evaluation: Assesses programme delivery efficiency from design to implementation.
- Market Effects Evaluation: Estimates a programme’s influence on encouraging future DF/DSM adoption in the broader marketplace
Savings Formula:
Expected savings are defined as: Estimated Savings=Baseline Use−Reporting Period Use±Appropriate Adjustments
IPMVP based Measurements
The regulations adopt the International Performance Measurement & Verification Protocol (IPMVP), providing four generic methodologies:
- Option A: Combination of stipulations and key factor measurements in engineering models
- Option B: Spot/short-term/continuous measurements in engineering models
- Option C: Regression analyses with measurement data
- Option D: Spot/short-term/continuous measurements to calibrate computer simulation models.
Independent Verification Agencies:
DISCOMs must empanel IVAs with at least one BEE Certified Energy Auditor, Certified Energy Manager, or Certified Measurement & Verification Professional (CMVP). IVAs must have experience in design, implementation, and statistical analysis of large datasets, and must not have been involved in the programme they are evaluating.
Funding & Cost Recovery:
DISCOMs must publish the following on their websites annually:
- All DF/DSM costs are recoverable through MYT/ARR filings, subject to Commission prudence checks based on cost-effectiveness test results
- A detailed DF/DSM programme portfolio must be submitted alongside tariff filings, with annual status reports in APR proposals
- The Commission retains power to direct creation of a pooled DF-DSM Fund through a specific tariff charge at a later date.
Transparency & Public Disclosure:
- Load Research reports
- Appliance use and saturation reports
- DF/DSM programme portfolio and implementation action plans
- Status reports on DF/DSM implementation
- EM&V reports.
Consumer load data must not be shared without explicit, revocable consent under the Digital Personal Data Protection Act, 2023, except for settlement and verification by IVAs.
Impact on Industry:
Demand Becomes a Grid Resource
For the first time in Rajasthan, electricity demand will be treated not as a fixed load to be served but as a flexible, controllable, and dispatchable asset alongside generation. This fundamentally changes how the power system is planned and operated.
New Market Opportunities for Aggregators and Technology Companies
The formalization of the Aggregator role opens entirely new revenue streams for technology companies, demand response platforms, IoT providers, EV charging networks, and energy analytics firms. Globally, demand flexibility markets are growing rapidly, and Rajasthan’s framework provides structured market access.
Reduced Power Procurement Costs:
By shifting demand to solar-rich hours and reducing evening peaks, DISCOMs can cut their dependence on expensive thermal generation and short-term market purchases — translating directly into lower consumer tariffs.
Renewable Energy Integration:
Rajasthan is projected to require nearly 7,000 million units (MU) of energy storage by 2030 to balance its solar-heavy grid. Demand flexibility provides a complementary solution by absorbing surplus daytime solar through shifted consumption, reducing the total storage requirement.
Infrastructure Deferral
Targeted flexibility in network-constrained DF/DSM Zones helps DISCOMs avoid or defer costly distribution and transmission infrastructure upgrades, creating savings for all ratepayers.
Agriculture Sector Transformation:
With agriculture consuming a massive share of Rajasthan’s electricity, integrating PM-KUSUM solarized pumps into the demand flexibility framework represents a game-changing opportunity to align irrigation loads with solar generation.
Consumer Empowerment:
Consumers transition from passive bill-payers to active participants in grid balancing, earning incentives by adjusting when they use electricity — with robust data privacy and withdrawal protections.
National Context and Comparison
| Feature | Rajasthan | Maharashtra | Karnataka |
|---|---|---|---|
| DFPO Targets | 0.25% → 2% (4 years) | 3% → 7% (5 years) | Not publicly specified |
| Incentive/Disincentive | ₹0.20 Cr/MW | ₹0.20 Cr/MW | Not publicly specified |
| Key Sector Focus | PM-KUSUM, EVs, Agriculture | Capacity planning integration | Broad consumer segments |
| Aggregator Framework | Formally defined | Formally defined | Formally defined |
| EM&V Protocol | IPMVP, IVAs mandated | IPMVP-based | Standardized M&V |
DISCOMs across these three states now cover 48% of India’s installed solar capacity, meaning these regulations collectively represent a structural shift in distribution governance nationally. According to a CEEW study, 30 states and UTs had notified DSM regulations by 2024, though actual implementation remained limited. Rajasthan’s framework, with its enforceable DFPO targets and financial incentives/disincentives, aims to bridge the gap between regulation and execution.
Implementation Challenges
- Advanced Metering Infrastructure (AMI): Effective demand flexibility requires widespread smart meter deployment under the RDSS scheme; without real-time data, baseline measurement and verification remain impractical.
- DISCOM Institutional Capacity: State-owned DISCOMs must rapidly build expertise in demand-side programme design, aggregator management, and data analytics.
- Consumer Awareness: Voluntary programmes depend on consumer willingness to modify behaviour — sustained outreach and demonstrable financial incentives are critical.
- Cost Recovery Documentation: Even where regulators allow tariff-based recovery, DISCOMs often fail to claim expenses due to inadequate documentation of implementation costs.
- Grid Modernization: Rajasthan’s distribution grid was built for one-way power flow; accommodating decentralized solar and demand response requires significant investment in grid automation and DERMS platforms.
Next Steps: Stakeholder Action
The RERC has invited written comments and suggestions (in six sets/copies) to be submitted to the Receiving Officer of the Commission on or before February 27, 2026. The draft regulations and Explanatory Memorandum are available on the Commission’s website at www.rerc.rajasthan.gov.in. All stakeholders — DISCOMs, aggregators, technology providers, consumer groups, industry associations, and the public — are encouraged to participate in shaping what could become a model regulatory framework for India’s renewable energy transition.